Requirement of documents in stcg in land trading
A P Singh
(Querist) 09 December 2013
This query is : Resolved
Respected sirs,
assessee earned a profit of Rs 11 lacs in FY2012-13 by trading in land.He entered an agreement to sale with owner of land by giving him 2 lacs advance. Then he found a prospective buyer for the same land at a premium(higher price) and entered into another agreement to sell with him (document retained by him),received money from him (acknowledgement receipts given by him on the back of the document)and and paid off the total consideration to the seller land owner and kept the premium(difference)and the seller executed the sale deed in favour of the person who had paid the assessee money by virtue of the agreement between him and the original seller.MY QUESTION IS
1)What is the nature of the income earned by assessee?Short term capital gains in immovable property or business income?assessee has earned some quick bucks this way thrice in FY2012-13.
2)Assessee has not retained the said agreement to sale or its photocopy.Will the Income tax dept ask for documents(agreemnts for sale)? If he is unable to produce the agreement to sale what will be the implication?
Thanks in advance.
C. P. CHUGH
(Expert) 09 December 2013
Dear Mr Singh
1)What is the nature of the income earned by assessee?Short term capital gains in immovable property or business income?assessee has earned some quick bucks this way thrice in FY2012-13.
This is nothing but income from business and chargeable to tax as per law.
2)Assessee has not retained the said agreement to sale or its photocopy.Will the Income tax dept ask for documents(agreemnts for sale)? If he is unable to produce the agreement to sale what will be the implication?
Although it is expected of an assessee to substantiate the income with documentary evidence, yet the department is more concerned about the expenses claimed than the income reported.
Vineet
(Expert) 10 December 2013
Agree with Mr Chugh that it is nothing but adventure in trade and business and therefore taxable as Business income.
The challenge here is substantiate expenses corresponding to income. you have not mentioned whether payments were made in cheque or cash. Secondly whether the registered sale deed is for the same amount as per agreement to sale between assessee and ultimate buyer. If yes, how the premium retained by assessee has been accounted for?
Please marshal all the facts.
A P Singh
(Querist) 10 December 2013
Dear Sir,
The transactions are illustrated below.
Assessee agreed to purchase 20 kathas land from the landowner/seller @ Rs 150000 per katha through an unregistered Agreement for sale on Rs 100 non-judicial stamp paper. The assesse(first purchaser) then found another purchaser of the same land willing to purchase @ Rs 2 lac per kattha and executed an Agreement to sale with the second purchaser. The asseessee received Rs 40 lac from his purchaser and paid Rs 30 lac to the original landowner/seller and kept the premium ie., Rs 10 lac and got the land registered in the name of his purchaser(second purchaser) by the original seller/landowner. All the transactions were in cash. The assessee's name appeared nowhere in the sale deed which was valued @ Rs 1.5 lac per katha ie Rs 30 lac or circle value whichever is lesser
C. P. CHUGH
(Expert) 11 December 2013
In case he is maintaining copies of both agreement for purchase and sales, he can very well substantiate his claim of income, else it could be difficult for him to substantiate.
2. Though his name did not appear in registration documents, in such case, he might/could have witnessed the transactions.
Rajendra K Goyal
(Expert) 11 December 2013
Well advised by thew expert C. P. CHUGH ji.
A P Singh
(Querist) 11 December 2013
Res Sirs,
His name does not appear in the registered sale deed even. His name only appeared in both the agreements for sale ,first one in which he is purchaser and second one in which he is seller. But unfortunately both the Agreements are not tracable.What to do?
Thanks
C. P. CHUGH
(Expert) 11 December 2013
AO is empowered to determine actual income of a person during a financial year for the purposes of taxing it. In order to determine income he may reply upon various documents including bank statement of such person. Where a person is inclined to offer higher income that what can be attributed to him, AO hardly has any problem, provided the intention to offer higher income is not based on any kind of illegal activities.
Vineet
(Expert) 12 December 2013
you said all transactions in cash. no mention of assessee in the registered sale deed and sale value mentioned in registered sale deed is also the amount received by actual owner or even less.
Where is evidence of income earned by assessee? Has the purchaser shown it as part of purchase consideration. If yes what are stamp duty implications of undervaluation. Whether purchaser will accept that he has paid these sums in cash which do not form part of registered agreement. What about stamp duty on unregistered agreements of sale and purchase?
You have to appreciate that the income earned by assessee is nothing but black money. In my opinion, he should not link it to any sale-purchase trasaction to avoid any further complications as mentioned above. If he wants to pay tax on the same, the money can be deposited in bank account in short intervals and disclosed as income from other sources.
